It doesn't matter what kind of business you own wether its a law firm, a home services business, or a tech company. What you charge matters. In fact, choosing a pricing strategy for your company is one of the most critical decisions you'll make as a small business owner. Don't believe us? Keep reading!
In this article, we'll explain what a pricing strategy is, why it's important to choose the right one, pricing strategy examples that work for home services professionals, and how to have competitive pricing to get more customers from your competitors.
What is a Pricing Strategy?
Before you can choose a pricing strategy, you have to understand what they are.
A pricing strategy is exactly what it sounds like: the method a company uses to price its products and/or services for its customers.
There are a range of pricing strategies available to you as a home services business owner, We'll discuss a bunch of them in a later section of this article.
But first, let's cover why you need to choose a pricing strategy in the first place...
Benefits of Choosing the Right Pricing Strategy
Choose the right pricing strategy and your business will receive the benefits.
Your pricing strategy is crucial to the success of your home services business. Get it right and your company will grow. Get it wrong and you'll struggle to secure customers.
No pressure, right? Don't worry! We'll give you all the information you need to make the right choice. But before we do that, let's dive into the main benefits of pricing strategies.
Your Pricing Strategy Can Impact Sales
What you charge for your services will impact the number of appointments you book, and, ultimately, the amount of revenue your company generates.
Contrary to popular belief, customers don't always want the lowest price. They want the most value. The key to more sales for your home services business is to choose a pricing strategy that reflects the value you provide. Do that and your sales will improve.
Your Pricing Strategy Can Affect Brand Perception
What does the general population think about your business? Your pricing strategy has a lot to do with the way potential customers perceive your company.
Set your prices too low and people might think you offer subpar services. Set them too high and they might think you're trying to rip them off. But set them just right and you'll become the company that offers quality services at a fair price-it's the best of both worlds!
Your Pricing Strategy Can Help You Accomplish Your Goals
Finally, the right pricing strategy will help you accomplish your goals in less time.
What do you want to achieve? If the answer is "maximum profit," choose a pricing strategy that will make this a reality. If you're more concerned with "growing market share," select a pricing strategy that will help your company expand and edge out the competition.
When you understand your goals, you can choose the pricing strategy that fits best.
9 Pricing Strategy Examples
Learn the top 9 pricing strategies for services businesses.
At this point, you know what a pricing strategy is and why it's so important to choose the right one for your home services business. Now, let's cover a few pricing strategy examples!
1. Economy Pricing
Are you looking to expand your business? One of the easiest ways to accomplish this goal is to price your services below the competition. This is known as economy pricing.
Just be careful. For the economy pricing strategy to work, you need to cut costs. Otherwise you'll probably lose money on every job you take. Here are a few ideas:
- Use software to manage your business instead of hiring an assistant.
- Negotiate pricing with a supplier to lower the cost of your supplies.
- Invest in better tools so that you can accomplish each job in less time.
If you choose this pricing strategy, work hard to communicate the value you provide, despite the low costs you offer. That way potential customers don't perceive your business as cheap.
2. Premium Pricing
Premium pricing is the opposite of economy pricing. With this pricing strategy, you intentionally charge more for your services than your competitors do.
This pricing strategy works well if you have something unique to offer your customers. Maybe it's a lengthy warranty or a rock-solid service guarantee. Maybe it's the fact that your company uses cutting-edge technology, which helps you deliver better results in less time.
Premium pricing will also work well if your business targets wealthy homeowners. These folks have money to burn and want to employ the best of the best. Since most people associate high costs with better service, this pricing strategy can help you attract the upper class.
If you choose this pricing strategy, be sure to provide enough value to justify the expense.
3. Cost Plus Pricing
Looking to deploy one of the simplest pricing strategies around? Try cost-plus pricing.
All you have to do is calculate the amount of money it will take you to complete a job. Then tack on a margin for profit before submitting it to potential customers.
For example, let's pretend you've been asked to replace an HVAC unit. You know that labor, materials, etc. will add up to $8,000. You also know that you want to make a 25% profit on every job. So you simply tell your potential customer that you'll replace their HVAC for $10k.
This pricing strategy is super simple, which is why some service providers swear by it. But it can lead to lost revenue. What happens if you charge $10k to replace an HVAC unit but the customer would have happily paid $12k? Unfortunately, you lose out on two thousand dollars.
4. Psychological Pricing
Have you ever gone to the grocery store and wondered why every item's price ends in an odd number? The eggs cost $1.97. The milk costs $2.99. Why not just $2 or $3?
Turns out, there's a very specific reason for this pricing strategy.
Most consumers look at prices that end in odd numbers and believe them to be lower than they really are. For example, they'll look at a $2.99 price tag and mentally round it down to $2.
This strategy is known as psychological pricing and you can use it for home services, too! Price your $1,000 service at $997 and see if you make more sales.
Just remember that psychological pricing isn't a complete pricing strategy. It's better used in tandem with one of the others on this pricing strategy example list.
5. Value Based Pricing
Have you ever paid a cleaning service to tidy up your home? If so, it probably wasn't because you forgot how to use a vacuum. It was because you didn't want to spend time cleaning.
So the true value the cleaning service provided wasn't a clean home, it was the extra couple of hours you had to go on a date with your spouse, or play with your kids, or whatever.
Value-based pricing is all about understanding the value you provide to customers. Then pricing your services to match. The benefit of this pricing strategy is that it will allow you to charge a premium and avoid haggling with potential customers.
The downside is that you have to really know why people hire you. If you don't, your prices won't accurately reflect your value and your sales will plummet.
6. Hourly Based Pricing
If you're looking for a straightforward pricing model, try hourly pricing.
To implement this strategy, type "[Your Profession] hourly rate [Your City]" into Google and scan through the results. Base your personal rate on your research. When you're asked to do a job, estimate how many hours you think it will take you to complete. Then multiply that number by the hourly rate you've chosen for yourself.
For example, if I was a plumber in Boise, ID, I'd type "plumber hourly rate Boise ID" into Google and learn that professionals in this field charge about $75 an hour. So, when a customer asked me to complete a 10 hour job, I'd tell them the price was $750.
There are a few problems with hourly-based pricing:
- You won't be rewarded for getting better and/or faster at your job.
- Some customers may feel like you're working slow to make more money.
- This pricing strategy puts a focus on price, not value, which could result in haggling.
7. Tiered and Bundle Pricing
The last pricing strategies we'll talk about are tiered and bundled pricing. Here's a quick definition of each-just to make sure we're on the same page.
- Tiered Pricing: Customers are offered multiple levels of service. For example, a window cleaner might offer a "Basic" package for $129, a "Standard" Package for $179, and a "Premium" package for $249. Each package would offer something different. The more money a customer spends, the more value they receive.
- Bundled Pricing: Customers can purchase multiple services at one time for a lower rate. For example, an HVAC tech might offer individual services like "Heating Repair," "AC Repair," and "Air Duct Testing." They might also offer a bundle deal that allows customers to get each of these services for a 20% discount.
Why use a tiered or bundled pricing strategy? Because you'll be able to upsell customers!
You can say, "If you upgrade to the Premium package, we'll do XYZ as well. Is that something you're like?" Or, "Instead of purchasing just the "Heating Repair" and "AC Repair" services, why not get our bundle deal? Then we'll check your ducts, too, and you'll save 20%."
8. Dynamic pricing
You can setup your pricing to adjust based on size of job, servicing area, source of lead, etc..
Dynamic pricing can also be a part of a coupon strategy where if someone doesn't act during the redemption period the website page is still active, but the coupon price maybe goes down from 20% off to 10% off.
Dynamic pricing can be a great way to still capture an audience that is interested in your services, but maybe didn't act quick enough.
Dynamic pricing is mostly commonly used by retailers like Amazon that adjust for supply/demand and travel companies like Delta for similar reasons.
9. Competitor based pricing
You may decide to do competitor based pricing. That is where you basically tell people you will match whatever price your competitor gives. You are basically counting on your competitor having a higher price and that you are able to make your goods or services cheap enough to have a high enough profit margin to run your business.
Many services companies will even offer a 5-10% discount lower than competitors to sweeten the deal for new customers.
Choosing to go with competitor based pricing can be extremely effective, but maybe not a long term goal. It can put your company in a "low cost leader" category vs. one where you are seen as a quality outlet who can charge what they want. It also makes it challenging to raise prices and profit margin in the future.
Which Pricing Strategy Should You Choose?
Ask yourself these questions to choose the right pricing strategy.
We've given you a lot of information. Now it's time for you to make your choice. Which pricing strategy will you choose? To make the right decision, ask yourself these three questions:
- What Are My Goals? Are you trying to maximize profits? Expand your company's customer base? Something else? Your goals will help determine your pricing strategy, as different strategies make it easier to accomplish different things.
- Who Are My Customers? Do you serve budget-minded people or those with cash to burn? Are they interested in higher-priced services or do they want the bare minimum? Knowing who your ideal customers are is essential to choosing a pricing strategy.
- What Do My Competitors Charge? Finally, do some research to find out what your competitors charge for their services. Are you targeting a similar audience? Then you might want to choose a similar pricing strategy to the one they're using.
The pricing strategy you choose for your home services business is important. Fortunately, you now have all the information you need to make the right decision. Good luck!
Need help choosing the right pricing strategy? Give Scorpion a call. We've helped thousands of small business owners improve their marketing efforts, generate more sales, and, yes, choose a pricing model that helps them accomplish their unique goa